Longden v Kenalda Nominees Pty Ltd
[2003] VSCA 128
•4 September 2003
SUPREME COURT OF VICTORIA
COURT OF APPEAL
No.6504 of 2001
| MARGARET LONGDEN | |
| Appellant | |
| v. | |
| KENALDA NOMINEES PTY. LTD. | Respondent |
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JUDGES: | PHILLIPS, BUCHANAN and CHERNOV JJ.A. | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | 10 and 11 April 2003 | |
DATE OF JUDGMENT: | 4 September 2003 | |
MEDIUM NEUTRAL CITATION: | [2003] VSCA 128 | |
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Damages – Contract – Assessment of damages for breach of contract – Deprivation of commercial opportunity to conduct business – Whether value established – Failure of plaintiff to establish damage – No acceptable evidence of loss.
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| APPEARANCES: | Counsel | Solicitors |
| For the Appellant | Mr. P.J. Riordan | Riordan & Partners |
For the Respondent | Mr. S.W. Kaye QC | Richmond & Bennison |
PHILLIPS, J.A.:
This is a case in contract[1]. The contract was for the lease by the plaintiff from the defendant of the premises in question and the parties were aware of the proposed lessee’s purpose to set up and run a retail furniture business on those premises. The contract was broken by the defendant. The premises were never made available by the defendant to the plaintiff and the lease never commenced.
[1]Questions sometimes arise whether there are differences when the claim is in tort: see, for example, Professor Brian Coote, Chance and the Burden of Proof in Contract and Tort (1988) 62 A.L.J. 761. In this instance, I simply note that in Sellars v. Adelaide Petroleum NL (1994) 179 C.L.R. 332, when dealing with the assessment of damages, the Court saw no need to distinguish between cases in contract, in tort, or under s.52 of the Trade Practices Act.
As proposed lessee, the plaintiff was entitled to damages for any loss suffered in consequence of the breach of contract by the defendant. Without question, the cause of action was established. That loss followed must also be established by the plaintiff, and on the balance of probabilities. The critical question, as I see it, is whether the plaintiff established at trial that it did suffer loss, given that loss depended in the circumstances upon the value to the plaintiff of conducting a business that was never commenced.
According to the plaintiff’s submissions, the loss is necessarily dependant upon hypotheses, both as to past by the time of trial (as from the time when the lease was due to commence) and as to the future (for the balance of the term of the lease, beyond the date of trial). Accordingly, says the plaintiff, the Court may take account of what is less than a probability and have regard to mere possibilities, provided only that such are “real” or “significant” or “not too speculative” or “not merely minimal”. It is enough that there was a real possibility that the business might make a profit; for accordingly something of value has been lost and substantial damages are payable. So the argument ran.
One answer is that given by Buchanan, J.A. Let it be supposed that the business might have made a profit. Given that the judge properly (in my opinion) rejected proof of profitability by reference to the Nunawading store, the judge was left with no evidence at all of what profit the store which the plaintiff proposed would – or even might – have generated. This was not a matter on which evidence could not have been led: the projected profitability of a business is a matter of evidence, but in this case it was left to mere speculation. In those circumstances, the plaintiff could recover only nominal damages.
But there is an antecedent problem in the submission made by the plaintiff. While the Court may have regard to hypotheses when assessing damages for breach of contract[2], the breach itself must be established on the balance of probabilities and so must the fact that some loss was caused thereby. Thus, in Sellars v. Adelaide Petroleum N.L.[3] Mason, C.J., Dawson, Toohey, and Gaudron, JJ. said[4]:-
“On the other hand the general standard of proof in civil actions will ordinarily govern the issue of causation and the issue whether the applicant has sustained loss or damage. Hence the applicant must prove on the balance of probabilities that he or she has sustained some loss or damage. However, in a case such as the present, the applicant shows some loss or damage was sustained by demonstrating that the contravening conduct caused the loss of a commercial opportunity which had some value (not being a negligible value), the value being ascertained by reference to the degree of probabilities or possibilities.”
This last sentence needs to be read with care. Their Honours accepted that the applicant might show that some loss or damage was sustained by demonstrating, on the balance of probabilities, that the contravening conduct caused the loss of a commercial opportunity which had some value, not being negligible. With that established, the Court moves then to assessing what that value was, and at that stage has regard to both probabilities and possibilities.
[2]See the oft cited passage in the speech of Lord Diplock in Mallett v. McMonagle [1970] A.C. 166 at 176.
[3](1994) 179 C.L.R. 332
[4]At 355.
As Brennan, J. put it[5]:-
"There is no reason why the balance of probabilities should not be the standard of proof required to establish both causation and the existence of a loss, though that standard is inappropriate to the assessment of the amount of a loss where the assessment is merely an evaluation of future possibilities”.
After quoting from the judgment of Gaudron, J. in Bennett v. Minister of Community Welfare[6], Brennan, J. continued[7]:-
"Unless it can be predicated of an hypothesis in favour of causation of a loss that is more probable than competing hypotheses denying causation, it cannot be said that the plaintiff has satisfied the court that the conduct of the defendant caused the loss. Where a loss is alleged to be a lost opportunity to acquire a benefit, a plaintiff who bears the onus of proving that a loss was caused by the conduct of the defendant discharges that onus by establishing a chain of causation that continues up to the point when there is a substantial prospect of acquiring the benefit sought by the plaintiff. Up to that point, the plaintiff must establish both the historical facts and any necessary hypothesis on the balance of probabilities. A constant standard of proof applies to the finding that a loss has been suffered and to the finding that the loss was caused by the defendant’s conduct, whether those findings depend on evidence of historical facts or on evidence giving rise to competing hypotheses. In any event, the standard is proof on the balance of probabilities.
Although the issue of a loss caused by the defendant’s conduct must be established on the balance of probabilities, hypotheses and possibilities the fulfilment of which cannot be proved must be evaluated to determine the amount or value of the loss suffered.”
[5]At 367.
[6](1992) 176 CLR 408 at 422-3.
[7]At 367-8. Emphasis added.
In this case the fact that some loss supervened on the breach of contract had to be established on the balance of probabilities and, given the rejection of the evidence concerning operation of the Nunawading store, the plaintiff failed at that point. The contract was for the lease of premises, for which the lessee would have to pay rent. The lessee’s purpose was to conduct the proposed business but it was not established, on the balance of probabilities, that the business would be profitable[8]. For instance, it was not shown to the requisite standard that profit derived from the proposed business would exceed the rent payable and in such a case it cannot be said that loss is demonstrated: see for example Sapwell v. Bass[9] as explained by
Fletcher Moulton, L.J. in Chaplin v. Hicks[10].
[8]In establishing that some loss occurred, I should have thought the question was whether the business would be profitable, not whether the business might be profitable; but the difference is of no moment now.
[9][1910] 2 K.B. 486.
[10][1911] 2 K.B. 786 at 797.
It is for these reasons that I would join with the other members of the Court in dismissing this appeal.
BUCHANAN, J.A.:
I have had the advantage of reading the draft reasons prepared by Chernov, J.A. I agree with him that the appeal should be dismissed for the reasons he has stated.
The appellant failed to prove two matters which were necessary to establish the amount of any entitlement to damages. The first was how likely was the prospect of the appellant conducting a profitable business in the premises at Frankston. The second was the amount of the profit. The failure to establish those matters rendered the determination of the amount of any loss suffered by the appellant entirely speculative.
Counsel for the appellant contended that there was a real possibility that the business proposed by the appellant would have been profitable. So much may be accepted. It does not follow that the trial judge was obliged, without more, to attribute a value to the loss of that chance to make a profit. In order to determine the value of the chance, the trial judge needed evidence to found an estimate of the likelihood of the prospect of profitability becoming a reality. The possibility that the business would make a profit could not be valued, for it was not known whether it was a remote possibility, a strong possibility or something in between.
It was also necessary for the appellant to establish a means of estimating the amount of the profit. The appellant was required to prove the loss of profit with as much precision as the subject matter reasonably allowed. It was necessary for her to lay a foundation for an estimate of the lost profit which was not mere guesswork, for
this was not a case where precise evidence of what had been lost could not be adduced.[11]
[11]Placer (Granny Smith) Pty. Ltd. v. Thiess Contractors Pty. Ltd. (2003) 196 A.L.R. 257 at [37]-[38] per Hayne, J.
The same evidence could have satisfied both requirements.[12] The appellant might have led evidence of the profit made by another business and her intention and ability to conduct a like business, or she might have led evidence of the precise steps which she proposed to take in the conduct of her business and the likely financial consequences of her actions based upon evidence of the experience of other retailers.
[12]Cf. Sellars v. Adelaide Petroleum NL (1994) 179 C.L.R. 332 at 365-6 per Brennan, J.
The appellant sought to prove her loss and its quantum by adducing evidence of income and expenses attributed to a furniture store in Nunawading, which was said to be similar to the business contemplated by the appellant. The attempt failed in two respects. The appellant did not establish that the Nunawading business was profitable and, in the absence of any evidence as to the manner in which the appellant proposed to conduct her business, its anticipated stock, outgoings, turnover and profit margins, there was no basis upon which any figures derived from the Nunawading business could be transposed to yield an estimate of the profit the appellant could have made.
CHERNOV, J.A.:
On 22 June 2001 a judge of the County Court held that the appellant[13], as plaintiff, failed to establish that she suffered any quantifiable damage as a result of her loss of opportunity to conduct a business at premises that the respondent agreed to lease to her in the circumstances which I will describe a little later. It was common
[13]The proceeding was instituted by the appellant and her husband on 11 August 1999. The husband died on 12 September 1999, but the appellant continued the proceeding in her own right and as sole executrix of her late husband’s estate. For the purpose of convenience only, I shall assume that it was only the appellant, and not the appellant and her late husband, who entered into the relevant transactions to which I refer in these reasons.
ground that the respondent wrongfully repudiated this agreement and thereby deprived her of this opportunity. His Honour went on to decide that, even if the appellant had established an entitlement to substantial damages for her loss of opportunity, she failed to mitigate her loss to an extent that her damages would have been limited to those incurred during the first six months of the lease. Nevertheless, said his Honour, because it was common ground the respondent had breached the lease agreement, he awarded the appellant $2,000 by way of nominal damages. The appellant now appeals against that decision on the principal ground that the learned trial judge wrongly failed to assess the value of her lost opportunity.
Background
The background to the proceeding is this. At all relevant times the respondent was the owner of shop premises (“the premises”) which are located in or near the main shopping centre of Frankston. In about July 1998 it caused a notice to quit to be served on the tenant of the premises on the basis that his lease had expired and that he was over-holding. In the belief that this action terminated the tenant’s rights to occupancy of the premises the respondent agreed to lease them to the appellant pursuant to a lease agreement dated 16 August 1998, for one year commencing on 1 October 1998. The lease granted the appellant three options for further terms, each of three years’ duration. The document described the use to which the appellant could put the premises as “Furniture retail/wholesale”. The initial rent was fixed at $30,000 per annum and the appellant paid one month’s rent at the time of the signing of the documentation.
The appellant was no stranger to the furniture business. For many years she and her late husband were involved in a successful furniture manufacturing business, first in Australia and then in China. In 1998 they formed the view that they could also successfully conduct a retail furniture business. To that end they sought out a manager for the proposed venture and ultimately decided to appoint Mr. Simon Dow to that position. Together the three searched for a suitable outlet for the proposed undertaking and, in the end, chose the premises in question. They considered them to be suitable for their purposes partly because they were appropriately positioned to take advantage of the potential customers living in its catchment area and partly because they were in close proximity to other furniture retailers who, it was thought, would attract potential clientele. Furthermore, there was the perceived benefit flowing from the proximity of the premises to Mr. Dow’s home. In the circumstances, they were optimistic about conducting a successful retail furniture business (“the Frankston business”) at the premises.
The arrangement, however, was upset when the tenant refused to vacate the premises. He claimed that his lease had not expired and that, consequently, he remained entitled to possession. Although the respondent initially challenged the tenant’s claim in that regard, in the end it accepted that he had a formidable argument that the tenancy was extant. Consequently, it informed the appellant that the premises were no longer available to her and returned the pre-paid rent. At first, the appellant demanded possession of the premises as was agreed, but eventually accepted the respondent’s repudiation of the lease agreement. Without having sought alternative premises, the appellant proceeded, first in the Magistrates’ Court, and then by a transfer of the proceeding to the County Court, to claim damages said to have been sustained by reason of the respondent’s breach. It was alleged in the Amended Particulars of Claim that, had the premises been available, the plaintiffs would have earned from the operation of the retail furniture business net profits of $29,000, $104,000 and $134,000 respectively in the first three years of its operation. Since the respondent admitted that it had repudiated the lease agreement, the only principal issue before the court was, as his Honour said, the “evaluation of the plaintiffs’ claim” for loss of profits that she claimed she would have earned in the conduct of the Frankston business.
Appellant’s damages case at trial
At trial the appellant sought to demonstrate the likely profitability of the Frankston business, not by adducing evidence of how profits would have been earned in the course of its operation, but by leading evidence of the profitability of another, allegedly comparable, furniture store located in Nunawading (“the Nunawading store”) which was part of a chain of retail furniture outlets known as Carol’s Country Collections (“the Carol chain”). All the stores of the Carol chain, other than the Nunawading business, were located in New South Wales. Thus, neither the appellant’s accountant nor any other financial expert was called to give evidence for the appellant as to the proposed operation of the Frankston business and, in particular, the basis on which it was claimed that it would have achieved the said profits. Similarly, although it was known that the appellant’s manufacturing company would supply a significant proportion of the furniture that was to be sold by the Frankston business, the court was not provided with any evidence in relation to its proposed operation such as the proposed mix of stock, mark up, the costs of operating it, projected sales and costs and the like.
To establish the profitability of the Nunawading store and the similarity between the two operations, the appellant called as its only accounting witness, a Mr. McDonald, who was the accountant for the Carol chain. He gave evidence concerning the profitability and value of the Nunawading business and proffered his opinion as to the similarity between that venture and the proposed Frankston business. On the basis of financial information that was available to him in respect of the Carol chain Mr. McDonald estimated the profitability and value of the Nunawading store and, on the basis of that material, concluded that the profits of the Frankston business for the 1999, 2000, and 2001 financial years would be, in round terms, $39,000, $189,000, and $163,000 respectively. He also calculated the capital value of the Frankston business on the basis of such anticipated earnings.
His Honour’s decision
His Honour was not satisfied that the McDonald evidence established the value or the profitability of the Nunawading venture or that the similarities between the two businesses were such that the Nunawading financial figures could form a meaningful basis on which to estimate the likely profitability of the Frankston business. His Honour said:
“No doubt the plaintiff and her late husband had expectations that they could make the business profitable, those expectations were not unrealistic but they were just expectations. For me the central question is whether the differences between the two, that is, Nunawading and Frankston, are so great that the figures for Nunawading, about which I can be satisfied, can be convincingly transposed to the other venture in a way, which after allowances for differences and uncertainty leaves them with some meaning.
My conclusion is that after I make allowance for, firstly, the reservations that I have about the Nunawading figures, and secondly the reservations that I have about transposing those figures, any conclusion that I would express would be no more than speculation. Any discounts that I would make would be no more than guesswork.”
A little later his Honour described his reservations about the Nunawading figures as “significant” and said that he could not “express a logical conclusion” about the ability to transpose the Nunawading material to the Frankston business. The judge said that an attempt to assess the profitability of the Frankston business by reference to the Nunawading store would be “sheer speculation”. His Honour went on to say: “It follows that the plaintiff has failed to quantify her loss to any meaningful extent”. For reasons that will become apparent later, I consider that, read in context, the words “to any meaningful extent” in that sentence do not qualify the judge’s conclusion that the appellant failed to establish the basis on which any loss she may have suffered could be quantified (by estimates or otherwise).
Grounds of appeal
Contrary to the requirements of r.64.05(1) of the Rules of Court, the appellant’s grounds of appeal are expressed only in general terms, alleging that the learned trial judge erred in failing to assess damages in respect of her claimed loss of opportunity to conduct the Frankston business (ground 1) and in his finding that the appellant failed to prove any loss (ground 2). Ground 3 which challenges his Honour’s findings on mitigation, to which I have referred, was not pursued. Thus the grounds do not challenge his Honour’s decision that the value of the Nunawading store and the profitability of the Frankston business have not been established. Nor do the grounds assert that the judge applied the wrong test in determining whether the appellant proved any quantifiable loss.
Nevertheless, Mr. Riordan for the appellant first argued that the learned judge merely had “reservations about the Nunawading figures” and did not actually decide that the appellant had failed to establish the value of the Nunawading store. It was next contended that as his Honour considered that the appellant had good prospects of establishing a profitable business at the premises, the commercial opportunity of conducting it had “some value”. Consequently, it was said, his Honour should have gone on to assess the value of the opportunity that was lost to the appellant and he should have done so by reference to probabilities and possibilities. The judge’s failure to make that assessment, it was submitted, constituted appealable error. Mr. Riordan also contended that his Honour applied the wrong test when determining whether the appellant had sufficiently quantified her loss. It was said that the judge considered that the appellant was required to prove with precision the quantum of her loss whereas it would have been sufficient for her merely to have produced evidence which would have enabled the judge to have estimated, as best he could, the likely profit of the Frankston business and, on that basis, the value of the appellant’s lost chance to make that profit. That his Honour adopted an incorrect approach in that regard is demonstrated, said counsel, by the judge’s reference to JLW (Vic) Pty. Ltd. v. Tsiloglou[14] and to McGregor on Damages[15]. Mr. Riordan said that the case and the text were concerned with the assessment of damages in the context of past events, which had to be established on the balance of probabilities, whereas the assessment of the value of lost opportunity to gain a profit in this case concerned future events which were to be assessed by reference to probabilities and possibilities. Such an assessment, said counsel, did not allow for proof of quantum with precision.
[14][1994] 1 V.R. 237 at 241 and 243 per Brooking, J.
[15]15th ed. at 214.
Counsel went on to submit that even if, as a matter of probability, the Frankston business would have been unprofitable, his Honour should not have rejected the appellant’s claim because he could not have excluded the real possibility that the business would have made a profit. That being the case, said counsel, his Honour should have gone on to attribute a value to that loss. In that respect, Mr. Riordan relied on certain observations of Woodhouse, P. and Cooke, J. in Takaro Properties Ltd. v. Rowling[16], to which I will refer later.
[16][1986] 1 N.Z.L.R. 22.
Value of Nunawading business not established
In my view, it is apparent from his Honour’s reasons for judgment that he was simply not satisfied that the Nunawading figures demonstrated the profitability of that store and he did not have just a “mere reservation” about them as Mr. Riordan would have it. It is true that in the passage in his judgment reproduced earlier, his Honour does not say, in terms, that the appellant failed to establish the value or the profitability of the Nunawading business. Nevertheless, a fair reading of his Honour’s reasons makes it apparent that he did hold such a view. That his Honour was not satisfied as to the value or profitability of the Nunawading store can be seen, for example, from the judge’s references in his reasons to the many shortcomings in the McDonald evidence. Thus, his Honour noted that many of the figures that were produced in relation to the Nunawading store were no more than an attribution to it of an arbitrary proportion of the financial data that related to the Carol chain as a whole. As his Honour said, the costs assessed (for the Nunawading business) were “across the board and were not just for Nunawading.” His Honour also noted : “In some instances it is difficult to make an assessment about the real cost of Nunawading as a stand-alone venture from the costs as they have been put before me. It emerged in evidence that some of the costs were costs of the whole [Carol chain], simply derived in a way that attributed some portion of those costs against the Nunawading venture.”
The judge also observed that it was significant that the McDonald material omitted a range of costs which his Honour identified and which he said would have been incurred by the Nunawading store. Furthermore, his Honour was of the view that some of the major items of estimated costs in relation to the Nunawading business, such as advertising, were unrealistically low. Importantly, his Honour obviously had considerable doubts about the credibility of the McDonald report which essentially constituted Mr. McDonald’s evidence-in-chief. The report, dated 2 May 2001, states that it has been prepared for the purpose of establishing the value of “the opportunity costs” of the Frankston business and that data from the Nunawading store has been “extrapolated” to arrive at the value of the appellant’s lost opportunity to conduct the Frankston business. It seems clear enough that the report was prepared on the basis that the Nunawading store was then operational (and profitable). It was only during the cross-examination of Mr. McDonald, however, that it was learned that, in October 2000, the Carol chain had plans to close the Nunawading business and that it was in fact closed in January 2001 about four months before the publication of the report. On its face, therefore, the claim in that report that the store operated at a profit was inconsistent with it being shut down. Mr. McDonald was unable to provide a satisfactory explanation why the business, which was supposed to have been profitable, was closed (or why the report was written on the apparent footing that the store was, at that time, a going concern when in fact it had been closed for some months). It seems to me that, in the circumstances, his Honour was well justified in saying that the closure of the store “... unexplained as it is, substantially reduces the confidence that I have in the figures that Mr. McDonald did proffer.” This observation applied as much to Mr. McDonald’s evidence that related to the profitability of the Nunawading store as it did to his opinion about the value of the “opportunity cost” namely, the capital value of the Frankston business. There were other deficiencies in the Nunawading financial material that were noted by the trial judge. I have referred to some of them[17] and the remainder need not be referred to in detail. Overall, however, it is plain, as I have said, that his Honour was not satisfied that Mr. McDonald had established the profitability or the value of the Nunawading business (at least to the point where it could be regarded as being relevant to the assessment of the value of the appellant’s lost opportunity to conduct a profitable business) or what was the value of the “opportunity cost” of the Frankston business that was lost to the appellant by reason of the respondent’s breach.
[17]See paras.[7], [8] above.
Material differences between the stores
His Honour's conclusion that any attempt to assess the profitability of the Frankston business by reference to the Nunawading store would be “sheer speculation” was made after a careful analysis by him of the material differences between the two ventures. In my view this conclusion was well open to his Honour and, as I have said, it was not challenged on appeal.
Appellant’s claim that Frankston business had value unfounded
As I have mentioned, Mr. Riordan’s argument that the appellant’s opportunity to conduct the Frankston business had some value so that its loss constituted damage in respect of which she was entitled to compensation, was based on the assumption that his Honour considered that the Frankston business would have been profitable. In my view, however, this assumption is without foundation. A fair reading of his Honour’s reasons does not show that he was of the view that the appellant had good prospects of establishing a profitable business at Frankston. The learned trial judge merely noted that there were factors which suggested that she had good prospects of establishing a profitable business. But at the same time, his Honour recognised that there were countervailing factors, such as uncertainties concerning the likely profitability of the Frankston business, which arose from the range of circumstances that he enumerated. In the end, as appears from the passage in his Honour’s judgment to which I have referred[18], he considered that the expectations of the appellant and her late husband that the business would be profitable were just that, namely, “just expectations”. Furthermore, there is nothing in the remainder of his Honour’s reasons that indicates that he considered that the opportunity in question had “some value”.
[18]See para.[7] above.
I add for completeness that there is also no basis in the appellant’s claim that there was evidence before the court, additional to the Nunawading material, which showed that the Frankston business had value. Such additional evidence as there was, consisted essentially of material that was tendered on behalf of the respondent in support of its claim that the McDonald evidence did not establish that the Frankston business would have been profitable. But such evidence was of a general nature and related to matters such as the levels of profitability of various categories of retail furniture businesses in Australia which were grouped according to their levels of turnover. Such material said nothing as to the possibility of the Frankston business being profitable.
Possibility of Frankston business profit
I now turn to Mr. Riordan’s argument that, even if his Honour was not satisfied on the balance of probabilities that the Frankston business would have been profitable, given that one could not exclude the real possibility that it could have been profitable, the judge should have assessed the value of the commercial opportunity and his failure to do so amounted to an appealable error. In support of this claim, counsel relied, in the main, on certain observations by members of the Court of Appeal in Takaro. In that case the negligent refusal of the Minister to consent to the issue of shares to a foreign corporation led to the failure of a property development which the plaintiff was to undertake. The trial judge[19] rejected the claim made by the plaintiff to recover damages for the lost commercial opportunity on the ground that “it was improbable that Takaro could have achieved and maintained a profitable operation” although he could not exclude such a possibility. The Court of Appeal overturned the decision, saying that the correct approach was to ascertain first, whether, in the absence of the negligent conduct, there was some prospect that the development would have been profitable and then to value the lost opportunity by reference to the degree of probabilities or possibilities.[20] Woodhouse, P. said[21], in effect, that the judge below failed to assess the chance of success only because the plaintiff had not demonstrated that the success of the project was “more probable than not”. The President went on to say that the correct test involved an analysis by reference to possibilities as well as probabilities. Cooke, J. considered[22] that the approach adopted by the trial judge (namely that the plaintiff was not entitled to damages if the consortium would have failed on the balance of probabilities) left “out any possibility of the ultimate success of the whole project. If there was some real possibility it must have had some commercial value, however hard to assess, and damages should have been awarded accordingly.”
[19]Quilliam, J. at 48.
[20]The decision of the Court of Appeal was reversed by the Privy Council but on a ground which is not presently relevant – Rowling v. Takaro Properties Ltd. [1988] A.C. 473.
[21]At 64.
[22]At 69.
In my view, however, Mr. Riordan’s above contention cannot be accepted. For reasons given below, the onus was on the appellant to establish, as a pre-condition to entitlement to substantial damages, that she has lost something of value, namely that the opportunity has some value[23] and the amount of that loss. But the judge’s findings mean that, in the circumstances, the appellant simply failed to prove those matters with the result that she was only entitled to nominal damages.
[23]Sellars at 354-355.
It is true that where a plaintiff succeeds in establishing a breach of contract by the defendant, he or she is entitled to damages which, so far as money can do it, will place him or her in the same situation as if the contract had been performed.[24] And it is also the case that, ordinarily, a plaintiff who is deprived of realising an opportunity to gain a commercial benefit because of the defendant’s breach of contract is entitled to damages in respect of that loss of opportunity even if there was less than a 50 per cent likelihood that the benefit would have been realised had the opportunity been pursued.[25] But such a plaintiff “is not entitled, by the award of damages upon breach, to be placed in a superior position to that which he or she would have been in had the contract been performed”.[26] Thus, it is for the plaintiff to prove both the fact of loss arising from the defendant’s breach and the amount of the loss.[27] Moreover, the plaintiff is required to establish both matters with as much certainty and particularity as is reasonable in the circumstances.[28] Consequently, where a plaintiff could have produced evidence of loss but has simply failed to do so, it ordinarily means that it has failed to prove its case on damages (so that, where the claim is based on breach of contract, the plaintiff would only recover nominal damages).[29] There are, of course, situations where a plaintiff cannot adduce precise evidence of the amount of loss, in which case the court will do its best in that regard and will estimate the damages and, where appropriate, will engage in a certain amount of guesswork.[30]
[24]See Robinson v. Harman (1848) 1 Ex. 850 at 855 per Parke, B. That this statement of principle has been accepted and applied in Australia has been recognised, for example, in The Commonwealth v. Amann Aviation (1991) 174 C.L.R. 64 at 80 per Mason, C.J. and Dawson, J., at 98 by Brennan, J., at 134-136 per Toohey, J., at 148 per Gaudron, J. and at 161 per McHugh, J.
[25]See, for example, Chaplin v. Hicks [1911] 2 K.B. 786, McRae v. Commonwealth Disposals Commission (1950) 84 C.L.R. 377, Kitchen v. Royal Air Force Association [1958] 1 W.L.R. 563, The Commonwealth v. Amann Aviation Pty. Ltd. (1991) 174 C.L.R. 64 at 102-104 per Brennan, J. and at 118-119 per Deane, J. and Sellars v. Adelaide Petroleum NL (1994) 179 C.L.R. 332 at 349 per the majority, Mason, C.J., Dawson, Toohey and Gaudron, JJ. and at 362-363 per Brennan, J.
[26]Amann at 82 per Mason, C.J. and Dawson, J.
[27]See, for example, Watts v. Rake (1960) 108 C.L.R. 158 at 159 per Dixon, C.J., Amann at 80 per Mason, C.J. and Dawson, J. and at 99 per Brennan, J.; Sellars at 351-352, 355 per majority of Mason, C.J., Dawson, Toohey and Gaudron, JJ. and at 367 per Brennan, J. and J.L.W. at 241 per Brooking, J.
[28]Ratcliffe v. Evans [1892] 2 Q.B. 524 at 532-533.
[29]Placer (Granny Smith) Pty. Ltd. v. Thiess Contractors Pty. Ltd. (2003) 196 A.L.R. 257 at 266 per Hayne, J.
[30]Placer at 266 per Hayne J. See also, for example, Chaplin v. Hicks at 792 per Vaughan, L.J., McRae at 412 per Dixon C.J. and Fullagar, J., Biggin & Co Ltd. v. Permanite Ltd. [1951] 1 K.B. 422 at 438, Wilson v. Matthews [1913] V.R. 224, Luna Park (N.S.W.) Ltd. v. Tramways Advertising Pty. Ltd (1938) 61 C.L.R. 286 at 301 and Aerial Advertising Co. v. Batchelors Peas Ltd. (Manchester) [1938] 2 All E.R. 788.
Thus, the first matter that the appellant had to establish as a pre-condition to an entitlement to substantial damages was that she suffered a loss being something of value[31], by reason of the respondent’s breach. That loss, said the appellant, was the loss of the chance to conduct the Frankston business. But, by itself, that would not amount to a relevant loss because, for example, the Frankston business might not have generated sufficient income to cover its outgoings, including the rent payable under the lease agreement.[32] As Brennan, J. explained in Sellars[33] “... the loss of a mere opportunity to acquire a benefit is not in itself a loss, but the loss of a benefit will be such a loss if the plaintiff proves that he could and would have taken the opportunity and that the benefit would then have been yielded”. In order to establish that being deprived of the opportunity to conduct the Frankston business amounted to a loss for relevant purposes, it would have been sufficient for the appellant to prove, on the balance of probabilities, that the opportunity had some value which was not negligible.[34] The appellant could have established that by showing that there was a reasonable, as distinct from a speculative, possibility that the Frankston business would or might have produced a profit. As Brennan, J. said in Sellars[35] “... opportunities to acquire commercial benefits are frequently valuable in themselves, not only when they will probably fructify in a financial return but also when they offer a substantial prospect of a financial return. ... Provided an opportunity offers a substantial, and not merely speculative, prospect of acquiring a benefit that the plaintiff sought to acquire or of avoiding a detriment that the plaintiff sought to avoid, the opportunity can be held to be valuable.”[36] And the assessment of the quantum of that benefit would necessarily involve the evaluation of hypothetical situations and future possibilities, or put another way, the matter would be resolved by reference to the degree of probabilities and possibilities.[37]
[31]Sellars at 354-355 per the majority.
[32]See, for example, Sapwell v. Bass [1910] 2 K.B. 486 at 492, 495 per Jelf, J.
[33]At 362.
[34]Sellars at 351, 355 per the majority and at 367 per Brennan, J.
[35]At 364.
[36]See also Sellars at 355 per the majority.
[37]See Sellars at 355 per majority and at 365-366 per Brennan, J. See also Mallett v. McMonagle [1970] A.C. 166 at 176 per Lord Diplock.
McRae and Sellars usefully illustrate how courts approach the task of assessing damages for loss of opportunity to obtain a commercial benefit where such a loss has been occasioned by the defendant’s breach of contract.[38] In McRae the plaintiffs could not recover the value of the non-existent tanker which they had agreed to purchase from the defendant. The court considered that it was impossible to value a non-existent thing. But the plaintiffs were held to be entitled to damages for wasted expenditure. In the context of their claim under that broad heading, they sought damages for loss of commercial opportunity, namely, the loss of profits they said they would have earned from the use of its steam vessel, Gippsland, under a contract that was yet to be concluded, had she not been devoted to the futile exercise of searching for the non-existent tanker. The plaintiffs led evidence, in the ordinary way, before the trial judge that the contract would have been concluded and that, over a period of 14 weeks they would have earned a weekly profit of £75. The court, however, found that a more reasonable estimate of the period during which the profit would have been earned was ten weeks. It also discounted the plaintiffs’ estimate of the weekly profit of £75 to £50 because of the contingency that the ship would have been idle for part of the period. There was no suggestion by the court[39] in that case that the plaintiffs had to establish such a loss of profits otherwise than on the balance of probabilities, albeit this was to be done by reference to hypothetical situations and future probabilities and possibilities. The loss of profits in that case, assessed by reference to possibilities and probabilities and discounted accordingly in respect of relevant items of damages, was treated as being equivalent to the value of the lost opportunity to gain the commercial benefit in the form of profits under the contract in question.
[38]The two cases are relevantly similar to the present case in the sense that, unlike the situation in, say, Chaplin v. Hicks, in each case the opportunity in question was not the subject of the contractual promise that was breached by the defendant, but lay in the nature of the thing contracted for – see McRae at 412 per Dixon and Fullagar, JJ. I have already noted that, unlike the situation in the present case, in Sellars the plaintiff had to establish that it would or might have secured the Pagini contract and that it would have been performed. A like observation can be made in respect of McRae. Nevertheless, as here, the loss in McRae and Sellars fell within the second limb of Hadley v. Baxendale (1854) 9 Ex.Ch.341 at 354 per Alderson, B. - it was the reasonably foreseen consequence of the breach – unlike the situation in Chaplin v. Hicks where the claimed loss was the natural and direct consequence of the breach.
[39]See 415-416 per Dixon and Fullagar, JJ.
In Sellars the court was required to assess damages for misrepresentation in circumstances where the plaintiff Adelaide Petroleum withdrew from negotiations for the completion of the then draft Pagini agreement due to the wrongful conduct of the defendants. The plaintiff claimed that it thereby lost or had foregone the opportunity of completing the Pagini agreement and deriving commercial benefit from it. The principal uncertainties were whether, but for the defendants’ wrongful conduct, the plaintiff would have entered into the Pagini agreement and even if it had, whether various conditions precedent to its performance would have been satisfied. The methodology adopted by the trial judge in assessing damages for such loss was effectively endorsed on appeal by the High Court[40]. His Honour was persuaded on the balance of probabilities that the Pagini agreement would have been entered into but for the defendants’ wrongful conduct, and that there was more than a speculative chance that it would have been performed, i.e., that the conditions precedent would have been satisfied. His Honour considered that the loss of opportunity was to be measured by reference to the benefits that were foregone when the plaintiff declined to proceed with the negotiations with respect to the Pagini agreement. But the learned judge also recognised that, because of the uncertainties surrounding the entry into the contract and its performance, the actual loss could not be assessed simply by equating it with the benefits foregone. Nevertheless, his Honour considered it appropriate to take as a base, or as a starting point, for assessment of the value of the lost opportunity or the benefit foregone, the amount of that benefit on the assumption that the agreement would have been concluded (and performed). In order to establish the amount of that benefit on this hypothetical basis, the plaintiff led evidence from, inter alia, an accounting expert as to what would have been its benefits from the agreement had it been concluded and performed[41]. Once the amount of the benefit, calculated on this hypothetical basis and by reference to probabilities and possibilities, was established his Honour discounted the various component parts of the profit foregone by amounts up to 60 per cent to allow for the probability that the agreement would not have proceeded and treated the resultant amount as the value of the lost opportunity to the plaintiffs by reason of the breach.
[40]At 342-347 per the majority and at 357-358 per Brennan, J.
[41]Adelaide Petroleum NL v. Poseidon Ltd. (1990) 98 A.L.R. 431 at 528-532 (at first instance).
It seems that in this case, the appellant recognised that she was required to establish the fact that she suffered a loss by reason of the respondent’s breach as well as the amount of that loss. Thus, the Nunawading evidence was led to prove that the Frankston business would have been profitable and the amount of profits that it would have generated.[42] Had that material been accepted by the judge as establishing that for which the appellant contended, she would have made out the case on damages. But, as I have said, the judge rejected the Nunawading evidence and there was no other basis on which his Honour could have held that there was a real possibility that the appellant would or might have generated sufficient income from the Frankston business to cover the outgoings, including the rent. Takaro is of no assistance to the appellant in that regard. Whatever may be said of their Honours’ observations in that case, the present situation is one where, for reasons I have given, there was no evidentiary basis on which his Honour could have found that the lost opportunity had any value. That was not the position in Takaro where the trial judge apparently could have but did not evaluate what was the extent of the possibility that the project could have been profitable. It follows, therefore, that the appellant failed to establish that she suffered a loss by reason of the respondent’s breach and thus, fell at the first hurdle on the path to proving her entitlement to damages.
[42]Ordinarily, the same evidence is led to establish the two matters that are critical to an entitlement to substantial damages, namely, that the opportunity in question had value and the quantum of the loss. As Brennan, J. noted in Sellars at 364: “Although the loss of a valuable opportunity and the assessment of its amount are concepts that can be logically separated, in practice it will usually be the same body of evidence that tends to establish both the existence of a loss and the amount to be recovered …”.
It is also apparent that, even if it could be said that the appellant’s opportunity had some value, she failed to prove the amount of it. Given the rejection of the Nunawading evidence, there was no basis on which his Honour could have found that the amount of damages suffered by the appellant was that contended for in the pleadings, or any other amount. It was not a case of the court facing difficulties in establishing the amount of the loss from the available evidence. Rather, it was a case where there was no relevant evidence before the judge on that issue.
In the circumstances, the judge did not err in not assessing the amount of the appellant’s loss as was contended for by counsel.
His Honour did not apply wrong test
I mention for completeness the appellant’s complaint that his Honour’s reference to J.L.W. and McGregor on Damages shows that he wrongly considered that, unless the appellant established her loss with precision, her case had to fail. His Honour’s reference to that case and text, however, does not demonstrate the error alleged. First, it is plain from the judge’s reasons that he referred to those authorities only in order to highlight that, where damages cannot be established with precision, the court assesses them by making relevant estimates. This did not involve error on his Honour’s part. In any event, it was appropriate that, in this case, the appellant should have been required to establish her loss with reasonable precision. As I have said, the appellant sought to establish the likely profitability of the Frankston business only by reference to what she claimed was a comparable trading operation. She was entitled to seek to prove damages in that manner, but the difficulty is that the judge rejected that evidence so that there was no basis on which he could have assessed damages.
Conclusion
It follows that, in my view, his Honour did not err as was contended for on the appellant’s behalf and consequently the appeal should be dismissed.
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